Gold Is Likely to Win This Election

The comments below are an edited and abridged synopsis of an article by Arkadiusz Sieroń

What does the US election mean for gold? A Democratic win implies higher taxes, increased regulation and big fiscal stimulus. A Trump win implies continued trade wars, budget deficits and geopolitical uncertainty. After all, gold saw a +/- 50% gain during Trump’s presidency.

Gold Is Likely to Win This Election | BullionBuzz | Nick's Top Six
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The worst scenario (but not necessarily significantly bad in absolute terms) would be a Biden victory, but with Republicans retaining Senate. In such a case, there would be more predictability in the White House and in foreign policy, while Republicans would block the most disastrous ideas of the new president.

Another issue is that the election results will probably be contested. Some analysts claim that this would be bad for gold, as a contested outcome would delay the fiscal stimulus. However, an election result conflict should also drive political uncertainty and support safe-haven demand for gold.

Last but not least, the US election’s relevance for gold may be overstated. After all, gold’s fundamentals are still positive: Real interest rates remain in negative territory, while the US dollar has recently weakened.

Moreover, the fiscal stimulus will take place no matter who wins the election; the only difference is that Democrats are willing to spend more. Fresh government spending will increase the fiscal deficit, and public debt should be even more favourable for gold. Furthermore, the resurgence of Covid-19 cases increases the chance of higher stimulus or for additional QE after some time. And, of course, the Fed will buy most of these newly issued Treasuries, leading to further QE and a larger Fed balance sheet, which should also support the gold price.

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